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Malmsteen v. Universal Music Group, Inc.

United States District Court, S.D. New York

April 19, 2013


Page 124

For Yngwie J. Malmsteen, Plaintiff: Craig Michael Spierer, LEAD ATTORNEY, Kenneth Sussmane, McCue Sussmane & Zapfel, P.C., NEW YORK, NY; John A. Dalley, LEAD ATTORNEY, Law Office of John A. Dalley, New York, NY.

For Universal Music Group, Inc., UMG Recordings, Inc., Defendants: Andrew Harrison Bart, LEAD ATTORNEY, Joseph Peretz Fishman, Jenner & Block LLP (NYC), New York, NY.


Paul A. Engelmayer, United States District Judge.

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This case arises out of a recording contract between plaintiff Yngwie J. Malmsteen, a musician, and defendant UMG Recordings, Inc. (" UMG" ). Before the Court are cross-motions for summary judgment on Malmsteen's sole remaining claim in this case: a breach of contract claim against UMG and its indirect parent, Universal Music Group, Inc. (collectively with UMG, " defendants" ), alleging three different violations of the agreement. Defendants move for summary judgment as to all three alleged violations. Malmsteen cross-moves for summary judgment as to two, and argues that triable issues of fact preclude summary judgment on the third. Defendants also move to dismiss the entire case as to defendant Universal Music Group, Inc. Malmsteen opposes that motion.

For the reasons that follow, defendants' motion for summary judgment is granted in its entirety, and Malmsteen's motion is denied.

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I. Background[1]

A. The Parties and the Agreement

Malmsteen is a professional musician. Bart Decl. Ex. 1 (Deposition of Yngwie J. Malmsteen (" Malmsteen Dep." )) at 8. Defendant UMG, a record company, is a wholly owned subsidiary of PolyGram Holdings, Inc., which in turn is a wholly owned subsidiary of defendant Universal Music Group, Inc. Harrington Decl. ¶ ¶ 2-3. UMG was formerly known as PolyGram Records, Inc. (" PolyGram" ), having changed its name in 1999. Id. ¶ 2.

On November 1, 1985, PolyGram and DeNovo Productions (" DeNovo" ), a division of DeNovo Music Group, Inc., entered into the recording contract at issue in this case. Bart Decl. Ex. 5 (the " Agreement" ); Malmsteen Dep. 9-10.[2] Malmsteen is DeNovo's successor-in-interest under the Agreement. Bart Decl. Ex. 6. Thus, at present, the Agreement runs between Malmsteen, as DeNovo's successor-in-interest, and UMG, as the entity formerly known as PolyGram. Universal Music Group, Inc. is not a party to the Agreement.

Under its Agreement with DeNovo, PolyGram was given the exclusive right to record " Master Recordings" by Malmsteen during the term of the Agreement, and to reproduce and sell those recordings. A " Master Recording" is defined as " [a]ny recording of sound, whether or not coupled with a visual image, by any method and on any substance or material, whether now or hereafter known, intended for reproduction in the form of Phonograph Records, or otherwise, including Audio-Visual Recordings." Agreement § 13.01. The Agreement provides that such Master Recordings are " entirely the property of [UMG]" and that UMG " and its subsidiaries, affiliates, and licensees shall have the sole, exclusive and unlimited right . . . to manufacture Records . . . embodying . . . the performances embodied on Master Recordings." Agreement § 5.01. The Agreement also gives UMG the " exclusive right to publicly perform and otherwise utilize [Malmsteen's] performances in connection with Audio-Visual Recordings for promotional and commercial purposes." Id. § 5.02(a)(i). Under the Agreement, UMG is obliged to pay Malmsteen royalties on income derived from its exploitation of Master Recordings; the means of calculating these royalties are set forth in Article 7.

UMG is required to provide Malmsteen with semiannual royalty accountings " on or before September 30th for the period ending the preceding June 30th, and on or before March 31st for the period ending the preceding December 31st." Agreement § 8.01. The Agreement also contains a limitations provision, see id . § 8.05(a), which, as this Court found in a previous decision, bars Malmsteen from asserting any claims based on royalty statements

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rendered before the March 31, 2006 statement. See Malmsteen v. Universal Music Grp., Inc. (" Malmsteen I" ), No. 10 Civ. 3955 (PAE), 2012 WL 2159281, at *6-8 (S.D.N.Y. June 14, 2012).

On April 3, 1989, UMG and Malmsteen executed an amendment to the Agreement. Bart Decl. Ex. 6 (" 1989 Amendment" ). Relevant here, the 1989 Amendment addresses a video recording of a February 1989 concert performance by Malmsteen in the Soviet Union (the " Concert Video" ). Id. That amendment grants UMG the right to " exploit, or refrain from exploiting, the Concert Video as it deems appropriate in its sole discretion including . . . editing the Concert Video . . . and manufacturing and exploiting . . . CD/Videos embodying the Concert Video or any portion thereof." Id. § 8(b).

The " Term" of the Agreement expired in the early 1990s, after Malmsteen had delivered four Master Recordings to UMG. Malmsteen Dep. 57-58; see Agreement § 1.01 (providing that the Term of the Agreement ends eight months after Malmsteen fulfills his recording obligations). Some of UMG's obligations under the Agreement were explicitly tied to the duration of the Agreement's Term, and therefore expired at this point. However, UMG's obligation to account to Malmsteen for royalties remains ongoing.

Malmsteen argues that UMG breached the Agreement in three distinct ways, each related to the calculation and payment of royalties owed to him. The Court reviews the facts relevant to each of these theories, in turn.

B. The Royalty Rate on Sales of Digital Downloads

UMG sells Records in a variety of formats, including digital downloads sold through non-affiliated third-party retailers such as Apple's iTunes Music Store. See Dalley Decl. Exs. D, E. In 1985, however, when the Agreement was executed, these modern means of distribution did not exist. The Agreement accordingly contains no express provision regarding sales of digital downloads.

UMG has been crediting Malmsteen for royalties on sales of digital downloads at the rates applicable, under the Agreement, to the sale of " Records" and " Phonograph Records" through " Normal Retail Channels." " Records" and " Phonograph Records" are defined as:

Any device now or hereafter known, on or by which sound may be recorded and reproduced, which is manufactured or distributed primarily for home and/or consumer and/or juke box use and/or use on or in means of transportation including " sight and sound" devices or Audio-Visual Devices.

Id. § 13.02.[3] " Normal Retail Channels," in turn, are defined as " [n]ormal retail distribution channels, excluding sales of Records described in [§ § 7.05-7.08], herein." Id. ยง 13.16. The royalty rate applicable to such sales ranges from 8% to 15%, depending on the location of the sale, the total number of albums sold, and whether the Record sold is an " ...

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